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Article
Publication date: 1 February 2015

Hassen Chtourou

The objective of this paper is to determine the effects of the European debt crisis on the European government bonds.

Abstract

Purpose

The objective of this paper is to determine the effects of the European debt crisis on the European government bonds.

Design/methodology/approach

In this paper, we present the European government bond; we explain the European debt crisis; and we examine the evolution of the European debt.

Findings

Our results suggest that the increase of the European debt contributed to the increase of the risk and the default of the European debt and to the depreciation of the economies of the European countries.

Originality/value

We calculate the value of the European debt risks in normal cases and in the case of crisis with normal distribution.

Details

Journal of Centrum Cathedra: The Business and Economics Research Journal, vol. 8 no. 2
Type: Research Article
ISSN: 1851-6599

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Article
Publication date: 4 December 2020

Alexey Zhukovskiy, Heidi Falkenbach and Ranoua Bouchouicha

This paper aims to examine the relationship between the use of public debt and investment activity of European listed real estate companies.

Abstract

Purpose

This paper aims to examine the relationship between the use of public debt and investment activity of European listed real estate companies.

Design/methodology/approach

Using a hand-collected sample of debt structures of 102 European public real estate companies, and using European Central Bank lending standards survey as a proxy for bank credit availability, the authors test a conditional hypothesis on the relationship between investment rates and the use of public debt during period of constrained bank lending environment in Europe.

Findings

The results show that ex ante diversification of debt allows retaining higher investment rates when the main source of debt, bank lending, is shrinking. The effect is statistically and economically significant and increases during times of tight bank lending constraints. The authors find no support to debt capacity explanation of the effect. They neither find support of the higher investment rates to be indicative of overinvestment problem. The results are robust to alternative model specifications and estimators.

Research limitations/implications

The empirical analysis is limited to Europe.

Practical implications

Investments and the growth of real estate companies depend on their ability to seize value-increasing opportunities that arise in the competitive markets. This paper evaluates the role of a diversified debt structure in this context. The results suggest that debt structure can have material importance for the investment activity of European listed real estate companies and issuance of public debt can help companies to counterbalance the negative effects of restricted bank loan supply on the investment levels.

Originality/value

The paper extends the literature on debt structures of listed real estate firms by considering the effect of debt diversification on investments.

Details

Journal of European Real Estate Research , vol. 14 no. 1
Type: Research Article
ISSN: 1753-9269

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Case study
Publication date: 20 January 2017

George (Yiorgos) Allayannis and Adam Risell

In January 2011, during the World Economic Forum's annual meeting in Davos, Switzerland, Jason Sterling, a hedge fund manager, was conducting online research to see if he…

Abstract

In January 2011, during the World Economic Forum's annual meeting in Davos, Switzerland, Jason Sterling, a hedge fund manager, was conducting online research to see if he could trade on any newsworthy information emerging from the summit. Sterling's fund traded primarily in sovereign debt, and he needed to figure out if European leaders would be able to come up with a viable solution to the crisis or whether the debt crisis would lead to the default of several European nations. He knew that if a solution was not found in the coming weeks, the sovereign debt markets could be thrown into turmoil.

Details

Darden Business Publishing Cases, vol. no.
Type: Case Study
ISSN: 2474-7890
Published by: University of Virginia Darden School Foundation

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Book part
Publication date: 23 October 2017

Abstract

Details

Economic Imbalances and Institutional Changes to the Euro and the European Union
Type: Book
ISBN: 978-1-78714-510-8

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Book part
Publication date: 19 November 2016

Taranza T. Ganziro and Robert G. Vambery

Abstract

Details

The Exorbitant Burden
Type: Book
ISBN: 978-1-78560-641-0

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Book part
Publication date: 24 October 2013

Vighneswara Swamy

The Eurozone debt crisis has indeed jeopardized the recovery plans put in place post global crisis by regulators, policymakers, and the sovereigns. Though the crisis is…

Abstract

The Eurozone debt crisis has indeed jeopardized the recovery plans put in place post global crisis by regulators, policymakers, and the sovereigns. Though the crisis is epicentered in the Eurozone, the knock-on effects of the crisis are felt all across the globe. The emerging and developing economies (EDEs) are also expected to post lower growth on account of worsening external environment and a weakening internal demand. This chapter analyzes the causes for sovereign debt crisis, presents the implications of sovereign debt crises, and draws lessons for banking sectors more particularly in the context of emerging markets like that of India.

Details

Global Banking, Financial Markets and Crises
Type: Book
ISBN: 978-1-78350-170-0

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Article
Publication date: 17 May 2011

Peter Yeoh

The purpose of this paper is to discuss and evaluate the sovereign default restructuring options in the European Monetary Union (EMU).

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Abstract

Purpose

The purpose of this paper is to discuss and evaluate the sovereign default restructuring options in the European Monetary Union (EMU).

Design/methodology/approach

The paper examines financial policy options from a politico‐economic‐legal perspective. It relies primarily on secondary data analysis.

Findings

Sovereign default restructuring an unthinkable phenomenon in the hitherto affluent EMU could now be a possibility because of the lack of political cohesion and the realities of two‐speed European Union.

Research limitations/implications

The paper relies extensively on secondary data. Future research through empirical multiple case studies would enrich the insights of this paper.

Practical implications

Insights from the paper would be of benefit to lawmakers, financial supervisors, financial institutions and investors in general.

Originality/value

The paper's main value lies in its use of multiple lenses to evaluate a serious financial issue in the EMU.

Details

International Journal of Law and Management, vol. 53 no. 3
Type: Research Article
ISSN: 1754-243X

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Book part
Publication date: 26 February 2016

Noel Cassar and Simon Grima

The recent development of the European debt sovereign crisis showed that sovereign debt is not “risk free.” The traditional index bond management used during the last two…

Abstract

Introduction

The recent development of the European debt sovereign crisis showed that sovereign debt is not “risk free.” The traditional index bond management used during the last two decades such as the market-capitalization weighting scheme has been severely called into question. In order to overcome these drawbacks, alternative weighting schemes have recently prompted attention, both from academic researchers and from market practitioners. One of the key developments was the introduction of passive funds using economic fundamental indicators.

Purpose

In this chapter, the authors introduced models with economic drivers with an aim of investigating whether the fundamental approaches outperformed the other models on risk-adjusted returns and on other terms.

Methodology

The authors did this by constructing five portfolios composed of the Eurozone sovereigns bonds. The models are the Market-Capitalization RP, GDP model RP, Ratings RP model, Fundamental-Ranking RP, and Fundamental-Weighted RP models. These models were created exclusively for this chapter. Both Fundamental models are using a range of 10 country fundamentals. A variation from other studies is that this dissertation applied the risk parity concept which is an allocation technique that aims to equalize risk across different assets. This concept has been applied by assuming the credit default swap as proxy for sovereign credit risk. The models were run using the Generalized Reduced Gradient (GRG) method as the optimization model, together with the Lagrange Multipliers as techniques and the Karush–Kuhn–Tucker conditions. This led to the comparison of all the models mentioned above in terms of performance, risk-adjusted returns, concentration, and weighted average ratings.

Findings

By analyzing the whole period between 2006 and 2014, it was found that both the fundamental models gave very appealing results in terms of risk-adjusted returns. The best results were returned by the Fundamental-Ranking RP model followed by the Fundamental-Weighting RP model. However, better results for the mixed performance and risk-adjusted returns were achieved on a yearly basis and when sub-dividing the whole period in three equal periods. Moreover, the authors concluded that over the long term, the fundamental bond indexing triumphed over the other approaches by offering superior return and risk characteristics. Thus, one can use the fundamental indexation as an alternative to other traditional models.

Details

Contemporary Issues in Bank Financial Management
Type: Book
ISBN: 978-1-78635-000-8

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Book part
Publication date: 23 October 2017

Ines Kersan-Skabic

The last financial crisis opens the question of the level of debt sustainability in the developed countries. The majority of the EU member states faced the growing trend…

Abstract

The last financial crisis opens the question of the level of debt sustainability in the developed countries. The majority of the EU member states faced the growing trend of public debt (while some countries are unable to service it on time, i.e. Greece) and some of the new members face the problem of external debt. Regarding there is no standard tool for measurement of public debt sustainability this analysis provides the statistical and econometric approach to find out bi-directional impact of public debt on GDP growth rate, unemployment, current account and interest rate spread. The research is performed on the five different groups of EU member states: EU28, Eurozone, new member states, GIIPS and EU-10-core countries. Results indicate the necessity to keep the public debt stable regarding the very slow post crisis recovery and low growth rates to avoid unintended consequences of debt burden on the EU economies.

Details

Economic Imbalances and Institutional Changes to the Euro and the European Union
Type: Book
ISBN: 978-1-78714-510-8

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Article
Publication date: 6 April 2012

James R. Barth, Apanard (Penny) Prabha and Greg Yun

The purpose of this paper is to discuss and then analyze the interdependency between bank and sovereign risk before, during and after the financial crisis.

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1476

Abstract

Purpose

The purpose of this paper is to discuss and then analyze the interdependency between bank and sovereign risk before, during and after the financial crisis.

Design/methodology/approach

The authors' approach is based upon an examination of 44 large banks headquartered in 13 countries; eight of these countries belong to the European Union, seven belong to the eurozone, and the remaining five belong to neither group. This provides a good comparison group of countries.

Findings

Evidence is found supporting the existence of significant bank and sovereign risk linkages. There are, however, different patterns in the relationships across countries and even across banks within the same country. Also, higher correlations between bank and sovereign risk are found in countries in which the ratio of the assets of banks relative to their home country's GDP is relatively high.

Research limitations/implications

Based upon the empirical results, allowing banks to invest in sovereign debt without requiring them to hold any capital against the “true” risk of such debt increases the likelihood of insolvency. This means that interdependencies between bank and sovereign risk are extremely important when setting regulatory capital requirements and considering whether action is needed to limit any increase in the likelihood of contagion.

Originality/value

The paper provides a new examination of the interdependencies between individual bank risk and the sovereign risk of the countries in which they are headquartered, with special emphasis on the recent global financial and eurozone crises.

Details

Journal of Financial Economic Policy, vol. 4 no. 1
Type: Research Article
ISSN: 1757-6385

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